MSCI, the most widely used equity index provider, prompted market fears about
Greece on Wednesday, after demoting the country to emerging market status.

MSCI redesignated Greece an emerging market late on Tuesday, 12 years after its promotion from the category, assigning it a tiny 0.3pc weighting - far less than it had when last in the emerging index.

Greek stocks fell sharply and the bond yield curve inverted further, meaning longer term debt returned less than shorter term, a sign of investor fear about Athens' ability to pay.

The Greek move, which means pension funds and more cautious investors will have to move out of the Athens stock index, left Greece with less weight in MSCI's emerging market index than the 0.4pc index weight assigned to Qatar and the United Arab Emirates.

Those two are former frontier markets that MSCI will include in the emerging markets index from mid-2014.

It is also far smaller than the 5pc share Greece had held before its 2001 promotion, making it one of the smallest constituents of the emerging markets index.

MSCI, whose indices are tracked by $7 trillion worldwide and $1.3 trillion in emerging markets alone, nonetheless said less stringent entry criteria for the emerging index meant that a number of Greek companies would be eligible to join, as opposed to just two that are in the developed index.

"We would at the time of change, which would be November, apply the new threshold for inclusion.. It will become a broader, more representative index," MSCI managing director Remy Briand told reporters.

"Whether it benefits the equity market or not...it's hard to gauge whether there will be more interest," he said.

Greece at present has a tiny 0.01pc weight in the $29 trillion market cap developed index but the relatively small size assigned to it effectively dash any hopes the country would benefit from being a big fish in a small pond.

Earlier this year Russell Indexes which is tracked by $3.9 trillion, also downgraded Greece. A third major provider, FTSE, has it on review for switch to emerging markets.

"There are some pension funds whose mandates are to invest in developed markets only. They will be forced sellers. That will more than offset buyers because there is so much more money tracking the developed index," said Patrick Armstrong, a fund manager at Distinction Asset Management in London.

However, other brokers pointed out that the move could prompt inflows to the Athens bourse.

"Emerging market funds could not enter since Greece was classified as developed market, now it will be on their radar," said Theodore Krintas, head of wealth management at Attica Bank.